About Short Sales...

If you are in the market to buy a home, or if you are selling a home - you have no doubt heard the term "Short Sale".

If a seller owes more on the property than what it is worth - a short sale is one option. A seller in this situation needs the lender to accept a "short" loan payoff, or in other words accept less than the full amount due on the loan.

So how does that effect you - the buyer? A short sale require the lender to agree to the reduced pay off. Therefore, when you negotiate on a short sale, you are negotiating with two parties:

1. The seller who owns the property
2. The lender who holds the loan.

You need the approval of both parties to get your offer accepted - so the process can be long and tedious.

It is important to make sure the seller has received preliminary approval from the lender, because if the lender does not agree to the terms you will have no contract.

We question the seller and/or the seller's agent to make sure the process is in place, and that the bank will cooperate. This process requires the seller to submit documentation to the lender demonstrating hardship, along with evidence that the market value is less than the outstanding loan.

It can be a long, drawn out, and ultimately aggravating experience. Often, you are dealing with layers of bureaucracy, and this can slow the process down.

You want to make sure that you have interest rate protection during this process. In a normal transaction, buyers will typically lock in interest rates for 30 to 60 days. That may not be enough time for a short sale, and you want to avoid being 45 or 60 days into the sale only to find out that your rate lock expired, and your interest rate just went up 1/4%.

We usually include in the purchase agreement a time frame for lender approval, with a clause that gives the buyer the right to cancel the transaction if the lender does not approve the sale after a certain period of time. In this way - our buyer client is free to pursue other properties if the lender is dragging their feet.

There can sometimes be issues at closing - if the owner is still living in the home. Often times, sellers in this situation are angry and frustrated, and on occasion can damage the property, remove appliances, fail to maintain the landscaping, leave the property dirty and full of debris, or take other actions that will cost you money.

We protect you with a walk through prior to closing - and if the seller is still there - we would make certain demands (depending on the situation) at the closing table to compensate you.

Since the seller theoretically has no money, any issues at close typically have to be negotiated with the bank.

Lenders like to sell properties "as is" in these situations, as they do not want to get into negotiations over property repairs. This is okay, if you have a good inspection - and know what you are dealing with (or not.) We will cancel the contract for you - if the inspections uncovers issues with the property that you don't want to deal with.

We can certainly request that the bank resolve certain issues. They are under no obligation to do so, but if the request is reasonable and it makes business sense for the bank to agree, they usually will.

Short sales can be fairly straightforward, or very complicated. This depends on the stance of the lender. Some banks are much easier to deal with than others when it comes to short sales.

As always, you should seek out an experienced, professional Exclusive Buyer Agent to help you navigate these waters.

Newsweek Article - Find An Exclusive Buyer Agent if Possible - When Purchasing Real Estate

There's a new article in Newsweek about the advantages of using an Exclusive Buyer Agent - as opposed to a "Buyer Agent." Now - if you are in the Chicago Illinois area - there is one near you -- Relocation Advisors Group - an Exclusive Buyer Brokerage

The article references - "If there isn't one in your neighborhood, you can use a selling agent as a buyer agent, but do some screening." I'd have to agree with that... If you can't find an Exclusive Buyer Agent - the next best thing is a so-called Buyer Agent - preferably one with the ABR designation.

But you need to ask them what percentage of their time they spend with buyers versus trying to obtain and market listings. Obviously - the agents who spend more of their time with buyers are the better bet.

In contrast - Exclusive Buyer Agents are specialists - spending 100% of their time serving home buyers - so they are very good at what they do. The analogy is - if you need heart surgery - do you want a general practitioner or a specialist? A purchase of your home is just as important (well almost!)

The problem with buyer agents is their home showing biases (perhaps showing more of their own company's listings or "selling" higher co-op payout properties), and that they can get into dual-agency conflict of interest situations where they may be representing the seller equally with you - which is really non-representation. They may also be reluctant to show for-sale-by-owner (FSBO) properties to you.

An Exclusive Buyer Agent can never get into those types of situations - and many of them actually align their compensation to be in your best interests - instead of the other way around. They show you all FSBO properties meeting your criteria.

The article states, "What about the fear that listing agents won't want to work with you if they know they have to split a commission with your buyer agent?"

In Illinois - every listing in the MLS has a certain payout (called the co-op - which doesn't mean that the agent with the buyer has to "cooperate" (as in give in) to the listing agent) - to someone who brings a buyer - so that is a non-issue.

Also - the payout is not necessarily a split of the total listing agent commission to the seller. Say the listing agent negotiated a 5.5% commission with the seller. The co-op may be 2.5% and the listing agent and their broker would then be keeping 3% (split between them based on whatever split the agent is on.) The seller can choose the payout to be whatever they want - and in fact - negotiate with a listing agent - to pay out more to someone bringing the buyer - than their listing agent - which may be beneficial in the current "buyers market."

Why? Some agents may "sell" the higher payout property to their buyer client - especially if the client isn't under contract with them. When the buyer has no contract with their agent - their agent can pocket the entire co-op payout.

The public thinks that the listing commission is "split" with the buy-side - which is not necessarily the case.

If you contract for a specific rate with your Exclusive Buyer Agent or Buyer Agent in writing - you are reimbursed for what you contract for - by the co-op payout. If the co-op payout is higher than your contract rate - you - the buyer - pocket the difference.

When you contract for a rate - there are no home showing biases - because your agent isn't going to push a higher commission property on you. They have no reason to - because you know your agent will get paid the fixed rate that you contracted for.

If the co-op is less than your fixed rate - your agent can negotiate to have the seller pay the difference - so you are nothing out of pocket to your Exclusive Buyer agent or Buyer Agent. Everything is always built into the price anyway - including the listing agent's cut. Agent's commissions are usually built into the purchase price.

Just as an Exclusive Buyer Agent or Buyer Agent does not dictate to the listing agent what they are going to get paid - neither should the listing agent dictate to the agent bringing the buyer - what they are to be paid. So - the "co-op" payout is really just a proposed payout by the seller / listing firm. The agent representing the buyer - may be worth more or less than that - so by having their buyer decide what they are worth - in writing - the co-op payout may or may not be acceptable to the buyer. If not - they can ask for closing cost credits as part of the negotiation.

HUD considers buyer broker fees to be an allowable closing cost.

We have found that buyers enjoy performance-based compensation for agents - in addition to just a flat fee. But very few agents structure their compensation to be performance based. In fact - a traditional buyer agent usually makes more when their buyer's price goes up. We believe that the opposite makes more sense. So do our clients.

If you want to learn more -- call an Exclusive Buyer Agent in your area.

Evidence That Traditional Agents Can Have Home Showing Biases

Some people don’t believe me when I tell them that “buyer agents” at traditional firms tend to push their own listings over others…due to perhaps getting in-house spiffs…. Remember - as a home buyer, when you hire an Exclusive Buyer Agent to represent you - that agent and their company never list property for sale - and so there is no biased home showing or dual agency conflicts of interest situations.

This is evidence….

“Besides camaraderie, @properties uses other techniques to encourage sales, including rewarding the two brokers who sell the most properties listed in-house with overseas trips. One quarter last year, the winners went to Italy. Another time, to Paris. And any broker who sells $10 million worth of real estate, in any type of transaction, is offered the choice of a Rolex or a Cartier watch.”

Obviously – when an agent pushes their in-house listings or worse yet - their own listings - the buyer experiences biased home showings - and can experience dual agency conflicts of interest with the buyer being equally represented with the seller. The buyer doesn't have someone fully on their side in that case – and doesn't have all the information available to get a good buy on a property that they would have had - had their agent not declared "dual agency" on them.